Jan 7, 2009

Business - LIC’s Jeevan Aastha catches investor fancy

Madhu T

MUMBAI: Investors, it seem, were waiting for a product like Jeevan Aastha. According to financial advisors, everybody — with some spare cash — wants to know about the new product from the public sector behemoth Life Insurance Corporation of India. No wonder, the insurance giant has already mopped up over Rs 2,000 crore and it is expecting to garner around Rs 25,000 crore before the issue closes on or before January 21.

However, is the ‘aastha' in the product justified. Experts said people seem to have many ‘‘ misconceptions'' about the product. Most common mistake is to confuse it with a FD, as the scheme offers guaranteed returns. For example, some people realised it’s an insurance products after insurance agents started speaking about the premium and insurance cover, among others. Others got lost trying to make sense of maturity sum assured, basic sum assured, death benefit , guaranteed addition, loyalty addition, and so on.

‘‘ It is not such a complicated plan. In fact, anybody who has bought an insurance policy earlier should be familiar with these terms,'' says an LIC agent. ‘‘ In time of market volatility, people have suddenly become safety conscious. They want their capital to be safe. Therefore, they are taking keen interest in Jeevan Aastha. It seems, they haven't put money in short-term insurance plans before,'' he added.

However, the most key ‘‘ misconception'' is about the rate of return one will get from the plan. According to the LIC brochure, one will get Rs 100 per Rs 1,000 maturity sum assured per year for a policy of 10 years and Rs 90 per Rs 1,000 maturity sum assured per year for a policy for five years. According to insurance experts, this is where people make mistake of doing the simple calculation and assume that the rate of return is 9% for fiveyear plan and 10% for 10-year .

‘‘ When you are speaking about a rate of return from an investment, you don't speak about simple interest rate. It is always compounded annual growth rate. Only this rate would give you an actual rate of return from your investment ,'' says Mukesh Dedhia, director, Ghalla & Bhansali Securities . ‘‘ Also, since it is an insurance plan and the premium varies with age, the return would also vary accordingly. A younger person would get maximum return, while older person would get less.''

A 13-year-old (minimum entry age) who opts for a cover of Rs 1.5 lakh by paying a premium of Rs 24,668 would get around 7.32%, whereas a 60-year-old (maximum age) who pays Rs 29,145 as premium would get around 5.55%.